Multi-brand retail FDI policy riders might be eased

Multi-brand retail FDI policy riders might be eased

Under pressure from international retailers, the government might soon amend the foreign direct investment policy on multi-brand retail trading by easing some conditions which had drawn sharp criticism from global investors.

However, there is no proposal to hike the FDI limit in the sector from 51 per cent.

The department of industrial policy and promotion, nodal agency for FDI policy under the ministry of commerce and industry, seems to have prepared a note for the Cabinet Committee of Economic Affairs to consider.

It would mean changes in the FDI policy approved in September.

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Image: Customers shop at a Best Price Modern Wholesale store, a joint venture of Wal-Mart Stores Inc and Bharti Enterprises, at Zirakpur, Punjab.Photographs: Ajay Verma/Reuters

Multi-brand retail FDI policy riders might be eased

A senior official told Business Standard the main reason why government opened the sector to FDI was ‘only’ to create additional and state-of-art back-end infrastructure such as cold chains and storage facilities.

For, the ‘present back-end facilities are not enough and the existing players will get an easy exit route if foreign retailers buy them out, leading to a real estate business of sorts.’

According to extant policy, “At least 50 per cent of total FDI brought in shall be invested in back-end infrastructure within three years of the first tranche of FDI.”

It does not specify whether such an investment will be in existing infrastructure or new ones.

The clarifications issued later said even front-end investment must go in creating new facilities.

It seems the policy on 30 per cent mandatory procurement from MSMEs is also set to change.

Multi-brand retail FDI policy riders might be eased

It says this much procurement of processed products should be from domestic small industries with investment of not more than $1 million in plant and machinery.

The government might relax this to say once the 30 per cent threshold is met, the retailer can source from the same supplier, even if the investment in P&M exceeds $1 million, keeping in mind quality consistency.

The government is also set to change the rider that retailers can set up their outlets in only cities with more than one million population.

In the past two months, commerce and industry minister Anand Sharma met Walmart Asia chief executive Scott Price twice. Recently, during their visit to the US, both Sharma and finance minister P Chidambaram had to face questions at the India-US CEOs Forum.